Welcome back to Built to Last! This week, we’re turning our focus to Costco, a business that feels almost boring on the surface, yet quietly outperforms much flashier competitors year after year.

As consumers grow more price-sensitive and economic uncertainty hangs in the air, retailers everywhere are being forced to make uncomfortable decisions. Raise prices and protect margins, or hold the line and absorb the pressure. Costco sits squarely in the middle of that dilemma, and the choice it continues to make tells us a lot about what it means to build something meant to last.

Costco’s real product is not bulk groceries or cheap rotisserie chickens. It is trust. And trust is being tested.

Costco’s origins trace back to a simple but radical idea. In 1983, Jim Sinegal and Jeffrey Brotman opened the first Costco warehouse with a belief that most retailers were playing the wrong game. Instead of maximizing profit on every transaction, they believed long-term success came from doing right by the customer, even if it meant sacrificing short-term gains.

From the beginning, Costco flipped the traditional retail model. It charged customers an annual membership fee and promised something in return. Prices would be fair. Markups would be minimal. The company would not quietly squeeze customers just because it could. In fact, Costco imposed strict internal limits on how much it would mark up products, a policy that still governs the company today (currently kept between 14-15%).

This discipline shaped everything. Costco carried far fewer products than a typical big-box retailer, focusing on a limited selection of items it could buy in massive volume. That volume gave it leverage with suppliers, which translated into lower prices for members. The warehouse format reduced overhead. Efficiency became part of the culture.

Perhaps most importantly, Costco treated its employees differently. While many retailers cut wages and benefits to boost margins, Costco paid higher wages and invested in retention. Sinegal believed that happy employees created better customer experiences, which reinforced trust and loyalty. It was not a popular philosophy on Wall Street, but it worked.

Over time, Costco became something rare in retail. A company that customers believed in. Members trusted that if Costco sold it, it was worth buying. They trusted that prices were fair. They trusted that Costco would not quietly betray them for a quarterly earnings boost. That trust compounded year after year.

Today, the retail environment looks very different from the one Costco grew up in. Inflation has pushed up the cost of food, labor, transportation, and energy. Consumers are increasingly cautious. Many are trading down, buying store brands, or delaying discretionary purchases. Value is no longer assumed. It is scrutinized.

For most retailers, this environment triggers a familiar response. Raise prices slightly. Shrink package sizes. Adjust promotions. Protect margins quietly and hope customers don’t notice. Many brands have taken this path, and many consumers have noticed.

Costco has felt these same pressures. Costs have risen across its supply chain, and the temptation to adjust pricing or expand margins is very real. Yet Costco has been unusually restrained. The company has held firm on its markup philosophy, even when competitors have quietly loosened theirs.

That restraint is not without cost. Costco operates on thinner margins than nearly every major retailer. It does not have much room for error. Every decision matters more when you have chosen discipline over flexibility. But that is also where Costco’s advantage lies.

Membership renewals remain strong. Customer loyalty remains unusually high. While shoppers may buy less overall, they continue to trust Costco when they do buy. In a moment when consumers feel skeptical and stretched, that trust is invaluable.

The company’s reluctance to raise membership fees too quickly reflects the same philosophy. While it could likely push fees higher without immediate backlash, Costco understands that trust is fragile. Once broken, it is difficult to restore. The short-term upside of squeezing members is rarely worth the long-term damage.

Costco’s response to today’s environment has not been flashy. There are no dramatic pivots or headline-grabbing transformations. Instead, the company is doing what it has always done. Protecting its principles.

That means continuing to negotiate aggressively with suppliers while maintaining relationships. It means refusing to expand selection just to chase trends. It means keeping private-label Kirkland products at a level of quality that rivals or exceeds name brands, reinforcing the idea that Costco’s name is itself a mark of reliability.

It also means protecting employee wages and culture, even as labor costs rise. Costco understands that cutting corners internally eventually shows up externally. Culture is not a line item. It is an asset that compounds over time.

Most importantly, Costco remains deeply aware of what it is actually selling. Customers do not pay a membership fee for convenience or entertainment. They pay it for confidence. The confidence that they are not being taken advantage of. The confidence that prices are honest. The confidence that Costco is on their side.

That confidence is Costco’s moat.

Costco’s story offers a powerful lesson, especially in moments of economic stress. Trust is not a branding exercise. It is an operating system.

Most companies talk about trust. Very few structure their entire business around protecting it. Costco does. Its limited selection, strict markups, employee investment, and slow decision-making all serve the same purpose. To ensure that when a customer walks into a Costco warehouse, they do not need to second-guess the transaction.

That kind of trust does not show up immediately on a balance sheet. It compounds quietly. It reveals its value when conditions worsen and customers become more discerning. When people start asking harder questions about where their money goes, they gravitate toward brands that have earned credibility over time.

For founders and operators, the lesson is simple but uncomfortable. Short-term optimization often conflicts with long-term trust. Squeezing customers may boost margins today, but it creates fragility tomorrow. Businesses that last understand that loyalty is built through consistency, not cleverness.

Costco’s success is not about being the cheapest. It is about being fair. Customers will tolerate inconvenience, limited selection, and even occasional price increases if they believe the relationship is honest. What they will not tolerate is feeling misled.

Trust, once established, becomes self-reinforcing. Members return not because Costco is perfect, but because it is predictable. Predictability is underrated in business, especially in volatile times.

The irony is that Costco’s discipline often makes it look slow or conservative. In reality, it is playing a much longer game than most of its competitors. While others chase margin expansion quarter by quarter, Costco invests in decades.

That is what being built to last actually looks like.

Costco is not immune to economic pressure. It will feel the strain of cautious consumers and rising costs just like everyone else. But its foundation was built with these moments in mind. When value becomes scarce and trust becomes fragile, Costco’s choices over the past forty years start to pay dividends.

That is the quiet power of discipline.

I’d love to hear your thoughts. Do you trust Costco more than other retailers right now. Have rising prices changed how you shop, or who you shop with. And which company should we explore next as we continue studying businesses built for longevity.

Thanks for reading and for being part of the Built to Last community. Until next week, keep building with patience, integrity, and a long-term mindset.

Because the businesses that last are rarely the ones chasing every opportunity. They are the ones protecting what matters most.

Sure, if you held your stocks since the dotcom bubble, you would’ve been up—eventually. But three years after the dot-com bust the S&P 500 was still far down from its peak. So, how else can you invest when almost every market is tied to stocks?

Lo and behold, billionaires have an alternative way to diversify: allocate to a physical asset class that outpaced the S&P by 15% from 1995 to 2025, with almost no correlation to equities. It’s part of a massive global market, long leveraged by the ultra-wealthy (Bezos, Gates, Rockefellers etc).

Contemporary and post-war art.

Masterworks lets you invest in multimillion-dollar artworks featuring legends like Banksy, Basquiat, and Picasso—without needing millions. Over 70,000 members have together invested more than $1.2 billion across over 500 artworks. So far, 25 sales have delivered net annualized returns like 14.6%, 17.6%, and 17.8%.*

Want access?

[Click here to skip the waitlist →]

_{Investing involves risk. Past performance not indicative of future returns. Reg A disclosures at masterworks.com/cd}